Contrarian Eclectica favours China

Founded in 2005, Eclectica Asset Management is a London based discretionary global macro firm which aims to serve private and institutional investors.

The team that founded Eclectica is made up of famed fund manager Hugh Hendry (Founder/CIO) (pictured), Tim Arengo-Jones (CEO) and George Lee (portfolio manager/head of Research).

The company launched its flagship Eclectica Fund in October 2002, which invests across all asset classes on behalf of both institutional and private clients, with firm AUM of $300m (€273m) at present.

In addition to the offshore vehicle, the firm also manages two onshore Ucits funds investing in Global Macro and Agricultural Equities, as well as individual client managed accounts.

Well known for its contrarian views, Eclectica serves a range of clients from individuals, family offices and private wealth managers to larger institutions, Hendry says. “We have a reputation of taking a contrarian investment approach, where we tend to favour high conviction thematic asset allocation,” the fund manager says.

A good half of 2015

And maybe just because it is a contrarian firm, the scenario that Hendry describes for the company’s performance in the last nine months has been a very positive one. “The last few quarters have been very profitable for us,” he says.

On the list as the main sources of income has been what Hendry calls the ‘triple play’: the Fund was long on the US Dollar, on US Treasuries and on non-US equities. But the firm has now rationalised these positions. “Many of the trends in place since September last year, such as a stronger US dollar and a rampant Chinese equity market, have been called into question and with higher levels of volatility, overall risk has been taken down.”

China, best performing country

While most managers are worried about China’s levels of growth at the moment, Henry says the country has been a big component of last year’s portfolios and Chinese fixed income was one of the company’s best performing allocations in 2014.

“Today, improving the lot of the Chinese household is the centrepiece of the new model. China’s policymakers have sought to raise wages and rebalance the economy in favour of higher consumption. Furthermore the wealth of Chinese consumers versus the rest of the world has been boosted by the expanding purchasing power of the renminbi.”

European equities

Following QE, Eclectica retains a “significant exposure” to the European stock market with particular interest in the Italian market. “A significant proportion of our European equity risk is in Italian stock market futures and in the Italian Popolari banks themselves.”

More generally, Hendry poses that the key question right now is whether “we are at a structural turning point” in terms of global interest rate, noting that Europe, Japan and China have all now adopted the same monetary policy as the US. “No longer is it a case of competitive devaluation where one block of countries eases policy and effectively pushes structural disinflation onto the others but one where everyone is now fighting the same global disinflationary forces together.”

“Understanding where your strengths are; breaking out from consensus and trying to predict the future by getting away from the noise and representing that in your portfolios. Monetising good ideas is the real challenge,” he concludes.